India’s Intellectual Property Rights Regime and Pharmaceutical Industry

Paul-Yung (Moses) Hsiao

October, 22th, 2018

#57797752

Case I: India’s Intellectual Property Rights Regime and Pharmaceutical Industry

    1. Patent acts of 1911 and 1970 were directly opposed in their origin, purpose and outcomes. The Indian Patents and Designs Act of 1911 enforced the English concept of patent as a right to ‘exclusive privilege’ of making, selling and using a patented item in India, with protection prolonged for 16 years and right to withhold or never grant a patent license to third. Compulsory licensing was almost impossible to impose, and proof of harm to industry made by patent holder’s monopoly was to be found and delivered by an entity seeking but refused a patent license. The Act stated that manufacturing process was a part of patent, and patent holders worded their patents broadly and vaguely to cover all possible manufacturing ways so as to prevent anyone from producing the same goods. Local companies were also prevented from participating in designing new drugs and their generics by strict final product patenting. It was codification of prevalence of foreign companies on the Indian market and extension of colonization policy of curbing Indian manufacturing at roots. In other words it was ‘unfair’ competition at its best from the very start, if ethical issues are considered. It was especially obvious in case of drug making.

    The Patent Act of 1970 reverted many of previous clauses and created laws more favorable to local market and makers. According to the new law product could not be patented, only the accurate manufacturing process was subject to patent; patent protection was shortened to 5 years since patent issuance; compulsory license granting to third parties became easy, and only drugs actually made in India were patent-protected, but not imported drugs. In addition, proof search of patent infringement was now placed on shoulders of patent holders. It means that it was nearly impossible for patentees to persecute potential violators, a complete mirror to provisions of 1911 Act. It enabled reverse engineering of imported drugs by local companies that possessed excellent facilities and manufacturing specialists but lacked access to innovative solutions.

    2. The Indian pharmaceutical industry and market were long in need of overhaul and change of rules of the game when the dispute between the US, the Indian government and Indian pharmaceutical firms arose in 1970. Before 1970 the Indian market was by 90% controlled by foreign manufacturers who held exclusive patent rights and abused them wildly. Even the US commission report stated that in India prices for international drugs were the highest in the world – because of the excessive patent rights. The newly attained independence and shift to leftism in politics meant that national product was to be prioritized over imported, and multinational corporations (MNCs) in control of the Indian drug market felt it as immediate threat to their profits. The lobbyist group OPPI pushed against any changes to the old patent laws protecting their rights, and the Indian drug firms joined ranks in lobbying for this change as an opportunity to win back the market. The government amid rise of nationalism could not look like privileging foreign manufacturers over local ones and turned to long-due lawmaking. Skyrocketing drug prices added fuel to the fire and in the 1970s new patent law benefiting local manufacturers and consumers was adopted.

    This legal move was enabled by political and economic combat that used social issues as a cover-up. The main conflict between India and the Western drug manufactures was about economy, pricing, monopoly, enormous profits for international companies and building an independent drug market for India. The conflict got the protectionist solution because the human health (and ultimately life and death) issues were at stake. This took the economic conflict to a new ethical and philosophical level. It was obvious that humanitarian agenda should prevail in new policy presentation and defense done by India, both for political reasons of nationalism promotion and with purpose of actual providing people with drugs they needed at prices they could afford.

    The consequences were very positive for Indian drug manufacturers, patients and market but very disappointing for MNCs that lost almost 70% of their turnover in the previously monopolized Indian market. There arose several large Indian corporations that manufactured and sold drugs at a fracture of price of doing it elsewhere. Cipla was one of them, and its founder Dr. Hamied was one of lobbyists for new patent laws. If in the 1960s India was heavily dependent on foreign drugs (almost by 80%), by 2000 the market was on 90% filled by local products of mostly satisfactory quality produced by 20,000 local firms. Due to low manufacturing prices and no R&D costs India began successfully exporting cheap bulk and formulation drugs worldwide, thus carving for itself chunks of global market previously owned by MNCs. These MNCs could not ignore this threat to their profits and impact and struck back, attacking the dubious Indian patent laws on international level.

    3. The further globalization and intensification of international trade and cooperation called for laws and rules regulating the field, and the WTO was created as a global supervisor in 1995. It designed sets of rule governing different aspects of global trade. One section outlined in these documents was TRIPS, the Agreement On Trade Aspects Of Intellectual Property Rights. The provisions of the document effectively countered protectionist policies like one adopted by India. According to TRIPS, both innovative product and process were patentable, protection lasted for 20 years, and both locally manufactured and imported goods were protected by patent, drugs included.

   By the time of global adoption of TRIPS tension between India and USA increased. The US imposed sanctions on India for infringing American trade by India’s patent laws. India was effectively pushed to accepting new rules of the game.  Nationalists and local firms severely opposed the possibility. To accept the new rules would mean to harm own companies and consumers. Not to accept them would mean becoming an isolated state without access to foreign investments, technologies and know-how.

Since globalization does not seem to stop and only gains momentum, it is reasonable for India to revise its patent policy to align it with the global set of rules. The previous years of effective protectionism and booming development of pharmaceutical production and market made it possible to move towards a new business model for these companies. Currently they have enough tangible and intangible assets to invest vastly into own R&D programs without worrying about every dollar or rupee. When the 1970 Act was adopted, the situation was different, but in 1995 the Indian drug industry was strong enough to safely move to a new business model based on respect for patent rights. Compliance with international requirements would attract more investors willing to develop new drugs on the premise of Indian facilities and workers, share technology and innovations. It will cost fractions of what it costs in the US or Europe, and for Indian companies it will mean totally new approach to developing own drugs without stealing their ‘recipe’. The process will be long and bumpy but otherwise India risks facing more sanctions and trade wars.